Editor's note: This piece is the last in a three-part series about the state of analyst research. The first installment,
What a Research Analyst Is (And What an Analyst Is
appeared Monday. The second installment,
They Work Hard for the Money -- Really,
Who's the ax? That's important to know when you're following a particular stock or sector. The ax is the sell-side analyst who is generally regarded as the most influential -- the man or woman whose very pronouncements move stocks up and down. The ax, however, may not in fact be the best analyst. Some of the axes in the
Analyst Ranking -- Equity 2000
survey did take top honors; many did not, as you can see in the table below.
Identifying an ax is an imprecise science. Some stocks or sectors have different axes on different days or in different environments. All axes, however, share certain characteristics. They have an extraordinarily close relationship with the management of the companies they follow. They communicate with a large and influential investor base -- typically through the aggressive sales forces of their firms. And they have the guts to make controversial calls and then shamelessly promote those positions.
There is little question, for example, that
is the ax on
. He was the analyst on Microsoft's initial public offering in 1986, and Sherlund speaks with such authority on the software maker, that one could be forgiven for mistaking the company's comments for Sherlund's at times. Microsoft stock, already wobbling, swooned in April when Sherlund very publicly cut back his estimate of revenue for the company's third quarter, for example.
True axes take power with them when they change jobs. Daniel Niles was an ax on
when he was with
. When he relocated to
recently, he immediately boosted Intel's stock with a bullish call on the chip maker.
Axes aren't necessarily the best liked analysts or the best stock pickers.
didn't rank first in
survey of analysts. But were she to go negative on
Morgan Stanley Dean Witter
investment banking client, rest assured the stock would plummet.
Of course, the ax can be perceived to be biased. Morgan Stanley's Mark Edelstone has been a relentless promoter of
, which supplies technology to memory chipmakers and also is a Morgan client. Countless times in the last 18 months his supportive commentary has boosted shares of Rambus, while his downward revisions on earnings sometimes hurt it. But Edelstone's support paid off, as the company essentially delivered on his promises -- and the stock is up more than sixfold from its 52-week low.
So, no matter how bright the top-ranked analysts are and no matter how good their stock picks, the wise investor remembers to ask: Is this the ax?
*At Robertson Stephens at time of ranking.